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Interest Rate Risk and Other Determinants of Post-WWII US Government Debt/GDP Dynamics

  • George J. Hall
  • Thomas J. Sargent

This paper uses a sequence of government budget constraints to motivate estimates of returns on the US Federal government debt. Our estimates differ conceptually and quantitatively from the interest payments reported by the US government. We use our estimates to account for contributions to the evolution of the debt-GDP ratio made by inflation, growth, and nominal returns paid on debts of different maturities. (JEL E23, E31, E43, G12, H63)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mac.3.3.192
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Article provided by American Economic Association in its journal American Economic Journal: Macroeconomics.

Volume (Year): 3 (2011)
Issue (Month): 3 (July)
Pages: 192-214

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Handle: RePEc:aea:aejmac:v:3:y:2011:i:3:p:192-214
Note: DOI: 10.1257/mac.3.3.192
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  1. Henning Bohn, . "Budget Deficits and Government Accounting," Rodney L. White Center for Financial Research Working Papers 28-91, Wharton School Rodney L. White Center for Financial Research.
  2. W. Michael Cox, 1985. "The behavior of Treasury securities; monthly, 1942-1984," Working Papers 8501, Federal Reserve Bank of Dallas.
  3. Cox, W. Michael & Hirschhorn, Eric, 1983. "The market value of U.S. government debt; Monthly, 1942-1980," Journal of Monetary Economics, Elsevier, vol. 11(2), pages 261-272.
  4. Robert E. Lucas Jr. & Nancy L. Stokey, 1982. "Optimal Fiscal and Monetary Policy in an Economy Without Capital," Discussion Papers 532, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Antje Berndt & Hanno Lustig & Sevin Yeltekin, . "How does the U.S. government finance fiscal shocks?," GSIA Working Papers 2006-E70, Carnegie Mellon University, Tepper School of Business.
  6. Michael Cox, W., 1985. "The behavior of treasury securities monthly, 1942-1984," Journal of Monetary Economics, Elsevier, vol. 16(2), pages 227-250, September.
  7. Eisner, Robert & Pieper, Paul J, 1986. "A New View of the Federal Debt and Budget Deficits: Reply," American Economic Review, American Economic Association, vol. 76(5), pages 1156-57, December.
  8. Refet S. G├╝rkaynak & Brian Sack & Jonathan H. Wright, 2008. "The TIPS yield curve and inflation compensation," Finance and Economics Discussion Series 2008-05, Board of Governors of the Federal Reserve System (U.S.).
  9. James H. Stock & Mark W. Watson, 2006. "Why Has U.S. Inflation Become Harder to Forecast?," NBER Working Papers 12324, National Bureau of Economic Research, Inc.
  10. Hanno Lustig & Christopher Sleet & Sevin Yeltekin, . "Fiscal Hedging with Nominal Assets," GSIA Working Papers 2006-E35, Carnegie Mellon University, Tepper School of Business.
  11. Boskin, Michael J, 1982. "Federal Government Deficits: Some Myths and Realities," American Economic Review, American Economic Association, vol. 72(2), pages 296-303, May.
  12. Daniel F. Waggoner, 1997. "Spline methods for extracting interest rate curves from coupon bond prices," Working Paper 97-10, Federal Reserve Bank of Atlanta.
  13. Joshua Aizenman & Nancy Marion, 2009. "Using Inflation to Erode the U.S. Public Debt," NBER Working Papers 15562, National Bureau of Economic Research, Inc.
  14. Butkiewicz, James L., 1983. "The market value of outstanding government debt : Comment," Journal of Monetary Economics, Elsevier, vol. 11(3), pages 373-379.
  15. Monika Piazzesi & Martin Schneider, 2006. "Equilibrium Yield Curves," NBER Working Papers 12609, National Bureau of Economic Research, Inc.
    • Monika Piazzesi & Martin Schneider, 2007. "Equilibrium Yield Curves," NBER Chapters, in: NBER Macroeconomics Annual 2006, Volume 21, pages 389-472 National Bureau of Economic Research, Inc.
  16. Gurkaynak, Refet S. & Sack, Brian & Wright, Jonathan H., 2007. "The U.S. Treasury yield curve: 1961 to the present," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2291-2304, November.
  17. Andrew Atkeson & Lee E. Ohanian., 2001. "Are Phillips curves useful for forecasting inflation?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-11.
  18. Seater, John J., 1981. "The market value of outstanding government debt, 1919-1975," Journal of Monetary Economics, Elsevier, vol. 8(1), pages 85-101.
  19. George J. Hall & Thomas J. Sargent, 1997. "Accounting for the federal government's cost of funds," Economic Perspectives, Federal Reserve Bank of Chicago, issue Jul, pages 18-28.
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